Can the US Get Value Capture Right?

Value capture is a promising financing mechanism where increases in property values associated with new transportation investment are used--or "captured"--to pay for the initial transport investments. (See here for links to reports that provide an overview of value capture mechanisms.)Value capture better ties together land development and transportation infrastructure and has been used successfully to build new transit systems, stations and lines around the world.  New York City, Kansas City, Chicago, Los Angeles, Dallas, Minneapolis and others have all pursued some type of value capture for transit and/or roads. Now the US DOT looks favorably at projects that use value capture when considering what to fund. Yet for all of it's promise the US experience offers mixed results, at best, and at worst is just another example of pernicious rent seeking and inadequate representation.

Here are three examples of value capture gone wrong that deserve further study:

Hudson Yards and the 7 Line Extension, NYC:
The city pushed forward with an extension of the 7 subway line to the west side of Manhattan. To expedite the process the city avoided federal funding and associated federal rules and regulations. Local funding was through a Tax Increment Finance (TIF) district managed by the Hudson Yards Investment Corp. Earlier this year the NYC IBO released a report that detailed how the TIF was not generating as much revenue as expected. This week it was reported that Related Companies will actually get a subsidy up to $328 million to build in the TIF district.  Subsidizing development is, of course, exactly the opposite of capturing increased property values.

Los Angeles Downtown Streetcar:
I wrote about this last month, but the residents of part of downtown voted to tax businesses based on their location to the streetcar. Having residents vote to raise specific taxes on targeted populations that can not vote (businesses in this case) raises questions of representative for me*, but even more problematic is that the streetcar project has changed for the worse as it is more expensive for less service. That's not what people voted for, and now, as with the NYC case above, the city will likely have to pick up the balance of the costs above and beyond any value capture mechanism.

Chicago's new Morgan/Lake CTA Station:
This station was paid for through a TIF and is credited, ex post, with reviving the neighborhood. Of course, the reason the station was planned there was that the neighborhood was already attracting lots of development. From CNT:

In 2002, the Chicago Department of Transportation (CDOT) investigated the feasibility of constructing a new infill station to boost train ridership and encourage economic growth along the Lake and South Side branches of the Green Line. Morgan Station, with its recent influx of residential and commercial development, was chosen as the optimal station location. The 2006 construction of the Pink Line, which will also be serviced by the new station, was also a consideration in the final decision.

It is great that investment follows demand. This a good way to build a great transit system. But it does call into question economic development claims, and a TIF in this situation may skim off property taxes that would otherwise have gone to the city's general fund. The TIF situation in Chicago is already nuts, though. Google is moving to the neighborhood, too, which is viewed as new development even though Google is already in Chicago in a nearby location. I will also note that even though Google considers transit access a plus, as mentioned here, they are moving from a neighborhood with about the same level transit access. What really improves with Google's new location is freeway access, as one of my students pointed out.

Ultimately, value capture is promising but also vulnerable to abuse (like all things). Before we start capturing value everywhere we need to design and enforce some safeguards to protect the public purpose. Value capture is not a panacea. For whatever reason, US cities and states are essentially incapable of writing decent and fair contracts. This is a generalization, but the US does privatization, contracting out and cost controls worse than most other countries with mature economies. I worry that value capture will end up added to this list of things the US can't get right.



*Also with regard to representation is that only 351 people voted in favor of the property tax to pay for the Kansas City streetcar. Direct democracy is no way to manage collective goods. We elect representatives for a reason--to represent. But this deserves much more space and time than I can supply here.

Los Angeles's Streetcar Project Doubled in Cost, Service Will Be Less than Promised

The LA Times has a story about new cost estimates for LA's downtown streetcar project. Originally estimated at $125 million, it will now cost about $250 million because of unaccounted costs of moving utilities and some other things. The story has many interesting and distressing tidbits that may have lessons for streetcar investment (and much transport investment).

First, the good people of California and specifically Los Angeles need to stop being lied to about projects they are expected to vote on. Proposition 1A, which voters passed to provide nearly $10 billion to the state's high speed rail project, promised voters a train that has unreasonable cost and service characteristics. The downtown LA streetcar used a popular vote to raise taxes on land* to pay for what was supposed to be half of the cost of the project. Now that vote represents one-quarter of the cost, and no one knows where the balance will come from. In the story Councilmember Huizar's office says they will "aggressively pursue" other federal grants. I hope somebody has a better idea than that.

I say that the people were lied to because moving utilities is a well-known major cost associated with downtown surface rail projects. Perhaps someone thought that the utility companies would just move the utilities out of their own volition, but this is unlikely as utility relocation is subject to lawsuits and has been a big deal for other downtown LA rail projects. I do hope there is a charitable explanation as to why utility relocation was left off the initial cost estimates.

Second, the use of propositions for these projects is straining the credibility of the public sector. Not only are costs double from initial estimates, but now service will be less than promised. From the story:

"We're not losing any sleep over these numbers," Jessica Wethington McLean, the executive director for Bringing Back Broadway, told officials. "They represent a 100% perfect solution, which is very unlikely."
She referred to the expectation that engineers will modify the plans to make them more efficient. That could involve reducing the number of streetcar stops or slightly shifting the tracks to dodge utility lines.

I'm pleased that advocates for the streetcar don't care how much it costs. Bully for them. But since service is now going to be reduced with fewer stations or less convenient track alignments mean that the benefits of the system are also reduced (if the benefits are not reduced because of these expected changes than the features to be eliminated should have never been considered). Whatever the benefit-cost ratio was before, it is much worse now. Somebody should have an inkling to reconsider the project based on new information about costs and benefits. If not, then why bother with all the studies, voting, etc.? And for $250 million for a couple of miles of surface rail shouldn't you get a 100% perfect solution? That's a lot of money for compromise.




*The land tax falls disproportionately on businesses and commercial properties, which did not get to vote for the proposition. There are larger issues of representation associated with the special taxing districts commonly used to pay for these streetcar projects that I won't get into here.

A Timeline of Los Angeles Transit Agencies

This timelime and diagram of Los Angeles transit agencies is impressive. It presents an honest history of transit agencies in Los Angeles and doesn't promote the false idea that there was some type of streetcar scandal or conspiracy.

There isn't any analysis in the timeline but a lot of information.

Los Angeles Almost Had a Bicycle Superhighway

Motherboard posted about an 1897 plan to build a bicycle superhighway toll road in Los Angeles. Here is a prior story. The road was to have a toll and even a bike rental system so riders could travel in one direction if they wished.

The LA Red Line is 20 Years Old: Is it a Success?

Los Angeles opened the first phase of the Red Line subway system 20 years ago. Here is a story from The Source about it. A midst the celebrations, how should the success of the rail investment be judged? Here are a few data points to consider.

Source: KCET

The above image is of transit ridership in LA County. These data include all transit modes. Overall ridership is about where it was in 1984 in absolute numbers. During the period of about 1996-2008 transit ridership grew faster than population growth, but overall ridership is not an obvious success story from rail investment. As the KCET story notes, and many scholars have confirmed, investment in bus ridership is critical for overall ridership numbers. The period of ridership increase in the above image is also when the LA MTA was required to improve bus service through a federal consent decree. See here for an overview.

So if ridership isn't a clear success, then what about development and land uses? Los Angeles finally got around to rezoning the area near Red Line stations last year. This can certainly be viewed as a failure of the city to not coordinate zoning codes with transit development, and maybe the city missed out on potentially dense development. This is far from certain, however, and it is more likely that the demand for rezoning came from regional growth pressure rather than simply transit access. If transit access were the primary influence on rezoning it would have occurred long ago.

As we celebrate the 20th year of Red Line service the clear successes are scarce. Transit ridership is falling below population growth, and transit service is supplied inequitably in too many areas of the county. Land development has not happened magically even though the population and economy expanded. Yet there are certainly anecdotes where positive outcomes exist, and perhaps in another 20 years it will all seem worthwhile. Of course, we probably shouldn't have to wait 40 years for the pay off from these types of investments.

Matt Kahn on Project Evaluation

In the above video Matt Kahn explains why many projects that do not pass muster in a benefit cost test still move forward. This NY Times article provides somereal world examples of the politics of rail investment in Los Angeles, especially how rail investment is not equitably spread around. From the Times story, Mayor Villaraigosa explains his support for a new rail line that doesn't stop in an African-American neighborhood:

But Mr. Villaraigosa also emphasized the benefits that the rail network — including a recently constructed light-rail line that carries passengers through the northern parts of South Los Angeles — would offer the area even if a Leimert Park stop was not built. He also noted his efforts to expand the Crenshaw line, which was originally designed as a bus line with a fraction of the money it now has.

“All of that happened because I drove it,” he said. “This was a busway before I made it into a light rail.”

The story does not make clear what the benefits of the rail line are expected to be, but I'm pretty sure that Leimert Park is better off with a busway that stops in the neighborhood than with a light rail line that does not. USC's Lisa Schweitzer explains why the residents of Leimert Park are upset:

“It comes out of this history in which the answer is always no,” she said. “When it comes to requests from South L.A., the answer is always no, we can’t afford it. And, conversely, when it comes to the West Side, the answer is always yes, because they’re so politically empowered and so wealthy.”

Too many transit projects are failures on economic and equity bases. For those of us who support transit, we need to be much more reflective about the investment choices we have made.

More on Credible Commitment and Transit Investment

I recently highlighted credible commitment as a factor that influences political support and coalitions for transit investment. In Los Angeles Measure J failed by a small margin in part because groups who should be natural allies of the MTA did not find the agency a credible recipient of dedicated sales tax revenue through 2069. Independent of the merits of any investment priorities, transport agencies need to be much more aware of how trustworthy they are in the public view in large part because of the changing structure of transport finance.

Federal funding is declining as a share of overall transport investment. As a response, local, regional and state actors have to take a larger role in taxing and spending for transport, as well as assessing priorities for investment. Voters are not likely to support new taxes, road fees, transit fares and other revenues if they think their money will be spent foolishly or dishonestly. For instance, in the New York region the Port Authority of New York and New Jersey damaged it's reputation after raising tolls on their Hudson River crossings in 2011. The dramatic increase in tolls was widely perceived to be needed for reconstruction of the World Trade Center site, and AAA filed a lawsuit on these grounds. Here is more from the Wall Street Journal with some details that the WTC site is diverting money away from existing infrastructure. Overall, the actions of the Port Authority will make it more difficult to raise revenues for required maintenance and new investment in the future regardless of the merit of the WTC project. Also in New York, the MTA is still negatively affected by the myth that they used to keep two sets of books. There never was a second set, but the MTA is less credible because of the perception and has trouble gaining political support at the state capital. I wrote about credible commitment and the MTA last year here and also highlighted distrust toward the Twin Cities Metropolitan Council because of investment choices the agency made.

So when I read stories such as this one from San Antonio, where the transit agency is swapping money with the highway department to avoid a lawsuit about improper use of sales tax revenues, I worry that the agencies involved are causing long term harm for short term gains. From the San Antonio story:

In a funding swap, $92 million in state money previously set aside to add nontoll lanes on U.S. 281 and Loop 1604 would replace local money reserved for the streetcar project.
In turn, the local money assigned to streetcars would go to adding the nontoll lanes.
The local money comes from the Advanced Transportation District, funded by a 1/4-cent sales tax approved by voters. The state money is from the Texas Mobility Fund.
The Texas Transportation Commission, which governs the Department of Transportation, is expected to vote Nov. 15 on shifting the state money.
Whether the new funding plan will crush any potential court challenge to streetcars remains to be seen.
Jeff Judson, a staunch opponent of rail and the use of ATD funds for streetcars, questioned the legality of spending TMF funds instead.
“I just don't think TxDOT should be accommodating the expenditure on transit, when it's just not their role, and transit will do nothing to reduce congestion,” said Judson, director of the Heartland Institute, a free-market advocacy group.
TxDOT Executive Director Phil Wilson said the agency's proposal to assist with the streetcar funding reflects its increased focus on partnerships.
“We want to find the best opportunity to take dollars and extend them as far as we possibly can,” Wilson said, adding that TMF money is among “the most flexible of funding sources the state has.”
Bexar County, VIA and the city voted last fall to fund the 5-mile streetcar system along with park-and-ride and transit centers.
But the streetcars — the centerpiece of the plan — generated the most controversy.
ATD money was just one of the funding sources, but streetcar opponents, including several Republican elected officials, said it could not be spent for streetcars because voters were promised it wouldn't go to light rail when they approved the sales tax in 2004. Streetcars and light rail, opponents contend, are the same thing.
Longtime rail advocate Judge Nelson Wolff disputes the similarity and believes officials were in the right to use the ATD money. But he didn't want to risk a lawsuit that could delay streetcar construction.

Again, my point is not about the relative merits of streetcars or light rail or roads or park and rides. Rather, the convoluted process of swapping money to achieve a desired result is problematic. In this case, streetcar investment. I will note that the most likely reason that the voters were not asked about streetcars on the 2004 ballot is that at that time the federal government didn't provide funding for streetcars. A change in how projects are evaluated put in place during the Obama administration opened the door for lots of streetcar projects. Cities had no idea what they were missing until the feds starting picking up the tab. Back to my point, as transit agencies become more responsible for raising money and prioritizing investments they have to become more accountable for those decisions, and they must act is ways that enhance credibility rather than reduce it.  Money swaps, poor investment decisions and other actions are problematic for good long term governance of transport investment.

Are Transit Agencies Credible?

Transportation finance is politically challenging in the best of times. These are not those times. In the New York region, the New York MTA has responded admirably to the damage caused by Hurricane Sandy. Will their efforts and effectiveness in restoring most service in the aftermath help the credibility of the authority with the public and elected officials? We'll see. What about New Jersey Transit, which is also working hard but has not had the same success restoring service?

Credibility matters for agencies more than generally thought. Mike Manville and I wrote a paper about credible commitment as a barrier to congestion pricing, where we argue that agencies that are not viewed as credible have particular challenges with politically difficult policies. In Los Angeles, credible commitment is a major issue facing the ballot Measure J to extend a dedicated sales tax 30 years to pay for transit improvements. Specifically, LA bus riders, who are the overwhelming majority of transit users, don't think the new revenue will be spent on improving bus service. Rather, they think that the LA MTA will spend the new money on expensive rail projects. From the LA Weekly story:

"The potentially devastating impacts of Measure J -- combined with the MTA's record of shamelessly ignoring the needs and concerns of working class Latinos and blacks as it advances a corporate-driven agenda -- has moved leaders of major churches to speak out," said the Bus Riders Union in a press release.

The Measure's supporters don't understand the opposition:

Denny Zane, a leading advocate for the 2008 countywide sales tax hike approved by voters -- and a key force behind this proposed 30-year extension of that tax hike just four years later, finds the Bus Riders Union's position galling.
Zane says that both Measure R from 2008 and the proposed Measure J on the November 6, 2012 ballot send 20 percent of the tax hike into the bus system.
"All around the country, bus systems had major dramatic cutbacks," Zane says. 

 To which the Bus Rider's Union responds:

But Measure J opponents point out that to the millions of bus riders, 20 percent of this latest tax hike is chicken feed.The vast majority of the millions of mass transit users in Los Angeles and its suburbs use the bus -- not the subways and light rail. But, they note, under Measure J, the subways and rail get the lion's share of this proposed sales tax hike to 2069.

There are good reasons to be skeptical of the LA plan. Here is a overview of service and investment since the sales tax measure first passed in 2008:

Since 2009 the MTA has added eight miles of train service, at a capital cost of about $2 billion. These new trains, the Expo Line and an extension of the east-county Gold Line, carry a total of about 39,000 people a day.

In the meantime, the cash-strapped authority radically reduced bus service twice: It cut bus lines by 4 percent in 2010 and 12 percent in 2011. These cuts were made even though buses move more than four times as many Angelenos as trains do.

 Bus riders in Los Angeles have a long history of feeling like they are not a priority. They have genuine reasons to oppose Measure J. The MTA also needs to recognize that they have credibility problems that they have to address. Is the MTA credible enough to trust with dedicated sales tax revenue until 2069? That's a lot of required trust. Damien Goodmon of the Crenshaw Subway Coalition has an answer:

"Can you trust these guys with that much money?" asks Damien Goodmon of the Crenshaw Subway Coalition. "Hell, no!"

And he likes transit spending:

Goodmon favors transit spending but hates the way Metro has gone about it. He's pissed off about the gobs of money being lavished on the Purple Line Westside Extension, which will run under Wilshire Boulevard.
The $6.3 billion to $9 billion Westside Extension will suck up a hefty chunk of the sales tax collected from consumers countywide, yet it falls miles short of the "subway to the sea" once promised, and it won't be completed until 2035.
Meanwhile, the planned Crenshaw Line in South L.A., serving mostly black and Latino riders, will be built on the cheap, at ground level. Goodmon has pleaded with Metro to address safety concerns at points where the line will intersect with streets.
Other black leaders were outraged when Metro's board chose not to build a Crenshaw Line transit stop at Leimert Park, which, in the eyes of many, is the business and shopping heart of black Los Angeles.
Goodmon says the Metro board's unfairly tilted votes on where to spend Measure R taxes amount to "basic economics: We're getting jacked."

Getting jacked, indeed. It is possible and reasonable to support transit investment and oppose Measure J (or any other similar measure). The agencies responsible for collecting and spending the money must be credible. It is not clear that this is the case in LA.

How Many are a Flock? Evidence from Los Angeles

The Los Angeles Daily News reports that San Fernando Valley residents are "flocking" to the new Expo rail line. Here is the story. (LA Observed picked up the story here.) Here is the opening paragraph:

The dozen riders aboard the Expo Line train car early Wednesday morning used the quiet morning commute in different ways: fiddling with phones, playing video games, or reading a book. All were strangers, but a handful on the train were neighbors, of sorts.

Are a dozen riders a "flock"?  The Daily News thinks so. Here is the third paragraph:

Turns out, San Fernando Valley commuters are flocking to the new Expo Line.

Here is a photo of the flock:

 Not to pick on the Daily News, but that is a photo of one dude on an empty train. That's not exactly photographic evidence that the service is popular with anyone, yet alone Valley residents.

Here is the photo from the LA Observed story:

I know that lots of people ride transit in Los Angeles, even if some trains might underperform a bit. I don't think transit in LA is done any favors by featuring pictures of empty stations and trains as part of stories that LA transit is really popular. Where are the people?

Talking About Walking, Plus Bonus Links!

Christopher Hawthorne is writing a series of pieces in the LA Times about the boulevards of Los Angeles. The first piece is about Atlantic Boulevard. The story is here and includes some nice interactive pieces. From the story:

The boulevard, in fact, is where the Los Angeles of the immediate future is taking shape. No longer a mere corridor to move cars, it is where L.A. is trying on a fully post-suburban identity for the first time, building denser residential neighborhoods and adding new amenities for cyclists and pedestrians.
In the process, the city is beginning to shed its reputation as a place where the automobile is king — or at least where its reign goes unchallenged. Cities across the U.S. followed L.A.'s car-crazy lead in the postwar era. This time around we might provide a more enlightened example: how to retrofit a massive region for a future that is less auto-centric.
Especially among younger Angelenos, including foreign-born immigrants and transplants from other American cities, there is a hunger for better-designed roadways and new ways of getting around. And L.A.'s political leadership is finally responding.

A point to consider is that public policies are responsive to market demand just like real estate development and blue jeans. Public officials are interested in supplying the types of projects and facilities that improve their chances of getting re-elected. Up until recently one way to up the electoral odds was to maximize external funding for large scale construction and subsidy because the officials could always claim employment benefits. External money gets funneled to projects that voters value, but also reflect the funding priorities of the funding agency (in transport this is often federal). What is happening in LA now reflects local finance in many cases, primarily through Measure R.

The city (and county) is reacting to voter demands for quality of life improvements rather than strictly mobility improvements. In many cases what LA is doing with their boulevards is extremely hard to do with federal money for a few reasons including over-reliance on travel time savings and a focus on mobility over accessibility.  Planning transportation as a quality of life concern has great potential for positive change and better financing models. I'll be presenting some recent work of mine along these lines ate the "Walking and the Life of the City" Symposium on June 7 at NYU Wagner's Rudin Center for Transportation Policy and Management. Details here.


Somewhat related, here are some thoughts from Erin Chantry from last week's CNU meetings, where walking was a major topic of conversation.

And this post by David Levinson about Bay Area density and urban economics should be required reading. A lot of the "all density all the time" urbanism misreads or overstates much from urban economics models.

Dickens on Los Angeles Transit

The LA Times checks out the new rail line with a UCLA English Professor who just published a neat looking book titled "Charles Dickens's Networks, Public Transport and the Novel." (I haven't read it yet.) Here is one takeaway:

By 1870, the year Dickens died, London's transit system was arguably better than the one serving Los Angeles today.

I'm not sure I necessarily agree with that statement from the story, but it's interesting to think about. This is a better takeaway and what makes the book sound worth reading:

"Dickens would have been surprised at how long it has taken Los Angeles to build its rail system," the professor said as our Gold Line train eased into Chinatown. "He was so into the power of rail. Amazed by the sense of making you fly without effort. He'd say that creating a network can change the way a place views itself."

I'm not so into the aspect of speed, but this may be a novel (pun intended) take on transport networks.

Equitable Transit

The Los Angeles County Metropolitan Transportation Authority is is trouble with the U.S. Government (again) for non-compliance with FTA civil rights requirements. Here is an LA Times story about this. Here is some background on the lawsuit brought by the Bus Riders Union against LACMTA in 1996 that led to the consent decree. The MTA was accused of reducing bus services and foregoing transit improvements in low income, transit dependent areas while investing in and expanding rail services to attract wealthy ridership. Such actions violate Title VI of the 1964 Civil Rights Act by "establishing a discriminatory, separate, and unequal transportation system while using federal funds."

Cutting bus services is common by U.S. transit systems as operations have annual budget deficits. (This isn't just an LA story. Here are Portland's upcoming bus service reductions and fare increases. Free rail fares downtown will be eliminated. Here is a story about how Portland relies on federal funding for their light rail expansion. Here is a story about the concrete being poured as part of the $700 million new light rail line.) However, in systems that have added rail services over the past few decades the rail deficits have made the operating budgets worse. To compensate for the costs of operating new lines, bus lines are reduced or eliminated. Since buses tend to have lower income riders than new rail lines (this is by design as new rail lines are usually built to attract high income "choice" riders rather than serve transit dependent riders. See this paper by Mark Garrett and Brian Taylor for details.) cutting bus services while maintaining rail services causes disproportionate harm to lower income riders. Bus riders are also more likely to be minority or immigrant populations.

Transit capital investment choices over the past four decades have been primarily focused on getting drivers out their cars rather than improving service for those who rely on the transit systems. This strategy has not been very effective. There are some new riders, but the dollars spent per rider gained is enormous. Clifford Winston argues that all new rail transit systems in the U.S. actually reduce social welfare. Martin Wachs details how subsidies have changed the incentives of transit providers without improving service. Daniel Hess and Peter Lombardi explain how metropolitan regions have adapted to various funding schemes for transit in a 2005 paper. These papers, and many others, point to the myriad problems of paying for transit service.

Robert Bullard, the leading environmental justice scholar, explains transportation justice like this:

“Follow the transportation dollars and one can tell who is important and who is not. While many barriers to equitable transportation for low-income and people of color have been removed, much more needs to be done. Transportation spending programs do not benefit all populations equally. The lion's share of transportation dollars is spent on roads, while urban transit systems are often left in disrepair. Nationally, 80 percent of all surface transportation funds is earmarked for highways. Generally, states spend less than 20 percent of federal transportation funding on transit.... In the real world, all transit is not created equal. In general, most transit systems tend to take their low-income ‘captive riders’ for granted and concentrate their fare and service policies on attracting middle class and affluent riders. Hence, transit subsidies disproportionately favor suburban transit and expensive new commuter bus and rail lines that serve wealthier ‘discretionary riders.’“

All of this research and analysis suggests a few things. First, we should be far more open to new ideas of transit service and finance. The current public monopoly model can be improved (there are many ways to do this, not all of which will be successful in all situations.). Second, we should focus more on providing high quality service where there is existing demand  rather than new construction that is speculative in terms of ridership. Third, keep in mind that operations for nearly all transit lines in the US are subsidized, and all new rail lines are. If the transit network is expanded, that means that the amount of subsidy needed for operations must be increased. Transit network expansion makes the operating budgets of transit agencies worse, not better, to which it follows that future service reductions or other new revenues are part of the agreement for new investment now.

The service reductions that accompany rail expansion too often come at the expense of those who rely on bus services and have no alternatives. This is what keeps getting the LACMTA in trouble, and I expect that similar lawsuits will pop up elsewhere. The capital investments we make (and how we finance them) have strong bearing on equitable transit services. How to address equity and what is perceived as fair are difficult issues that are not easily solved, but we currently don't spend enough effort in transit planning and policy working through these concerns.